Succession Planning
A family-owned business that brings in $10 million per year is passed down from a father to his three children. One of the children is completely invested in keeping the business in the family and maintaining a successful operation, another child is willing to stay or sell the business, and the third child wants nothing to do with the operation of the business. The question of who should take what share of a company, especially when that company is being passed down to family, is one that requires years of planning and preparation.
Succession planning is a reality that all companies will have to face at one point or another. Whether succession means passing down the business to family or business partners, selling the business in its entirety or some combination of both, without a proper succession plan, the life of the business is at stake.
Nelson Muller and Gerald McKinney have made careers out of helping businesses prepare for what comes next. As the men behind BizCrossing, their focus lies in helping clients grow their portfolios, raise investments and sell their businesses.
McKinney, CEO and founder of BizCrossing, says oftentimes, such as in the case of the three children, the original owner underestimates his or her importance in the daily operations of a company. “He just assumed the kids would be fine running the business after he passed away, and then he did pass away, and the business started to go downhill,” McKinney says. It’s a reality that Muller, vice president and head of business development at BizCrossing, admits they see far too often with their clients.
Muller and McKinney both agree one of the vital steps for a business preparing to transition ownership is to make the company less dependent on a specific individual. “If I’m running a company, and I’m thinking in five years I want to get out, it’s important I start thinking about my management team,” McKinney says. When Corey Turner, Melissa Murphy and Blair Murphy took over ownership of Johnston Paint & Decorating in 2015, Melissa Murphy says there were many aspects of the business the new owners had never had to deal with previously.
“It’s the little things: making a deposit, paying taxes, insurance, payroll, those kind of things we weren’t a part of,” Murphy says. “Something like shopping for insurance rates takes several meetings. It’s learning to juggle all of those things.”
Muller says making a business less dependent on the owner is equally important if the plan is to sell the company to outside investors. He compares investors purchasing a business to someone buying a car who doesn’t want to drive it. Investors are looking for a business that can run itself without having to interfere or rework the structure of the company.
Heather Dimitt, executive director of Big Brothers Big Sisters of Central Missouri, says in the realm of nonprofits, what she calls “institutional memory” is a big concern. Although larger corporations may easily be able to cross train employees to fill a variety of roles, smaller companies, especially small nonprofit entities, most likely don’t have the staff or resources available to cross train staff. “My best advice for succession planning is to identify exactly what needs to happen to keep your business’s doors open and operating every day,” Dimitt says. She adds that this includes knowing everything that goes on behind the scenes of an operation and making sure at least two additional people are aware of key operating procedures and contacts who can help keep the business afloat during transition.
McKinney and Muller advise that it’s never too early to start a succession plan. Whether this means deciding who will take over the business, making sure operating procedures are consistent throughout the company or making sure company goals are clearly communicated, the earlier specific details are decided, the easier the transition will be. Charles Digges Jr. and his partner Skip Grossnickle started grooming Richard Miller and Jason Swindle to take over The Insurance Group almost five years ago, gradually giving them more responsibility.
“Skip and I have worked really hard to build this company to where it is today, but there’s nothing that would make me prouder than to see Rich and Jason have it twice as big in 20 years, ” Digges says. If a business is going to be passed down to a family member or someone from within the company, it is good to know that running the company is a responsibility the new owner will be both interested in and prepared for.
There are a lot of vital decisions that need to be made while building a succession plan, and it isn’t something that will be created overnight. However, with a strong plan in place, an educated management team and a clear understanding of how you want your company to operate once it’s passed down, the hard work that went into building and maintaining the business will not go to waste.
Johnston Paint & Decorating’s Foundation of Trust
It’s been 90 years since Johnston Paint & Decorating sold its first can of paint, and since then the company has undergone some major changes, including new ownership. Despite all the change, Johnston Paint & Decorating has kept the same values that it had in 1925 by maintaining a solid foundation of trust.
The succession plan of the company has sort of sidestepped the family tree, but ownership has remained relatively close to the original lineage. In 1925, L.D. Johnston established L.D. Johnston Co. on Ninth Street. He kept the business in the family when he sold the company to his two sons, Paul and Lennie, in the 1950s, and they moved the location of the store to East Broadway. Lennie remained the owner until 1984 and then sold the company to his son-in-law Ron Elder and employee Gary Turner. Elder and Turner moved the location of the once again to a space on Ash Street shortly after they took ownership.
In 2007, the current location of Johnston Paint & Decorating on Buttonwood Drive opened up, allowing the store to operate on a much bigger scale. In January 2014, Gary Turner sold the company to his son Corey Turner, niece Melissa Murphy and her husband, Blair Murphy. For the first time since its birth in 1925, Johnston Paint & Decorating’s owners have no blood or marriage relation to the original Johnston owners.
“Within the last five years is when they really solidified that we would be the future ownership team,” says Melissa Murphy, co-owner of Johnston Paint & Decorating. “Even with having all that time to work towards that goal, you just don’t really know what it’s like until you’re in their [Elder’s and Turner’s] shoes.”
Transitioning leaders
The key element to making a smooth transfer of ownership all boils down to trust. Melissa, Blair and Corey had all been employees at Johnston Paint & Decorating for more than 10 years, and Elder and Turner trusted that they would continue to grow the business with the same values they had. Melissa, Blair and Corey had to have a strong sense in Turner and Elder as well.
“There was a lot of trust there,” Melissa Murphy says. “We all worked with the intention that someday this would be ours for many years, so we made some concessions that we might not have taken had we not seen the end result, like working a lot of extra hours. For several of those years, we sort of thought we knew what we were going to do [in terms of future ownership], but we didn’t have anything in writing, and there wasn’t a guarantee. I don’t think we were ever nervous through that period, but there are a lot of businesses that would never be able to do that.”
Looking back on the transition, Murphy says better role definition and structure among employee roles could have benefitted the company and made that adjustment period a bit easier.
“Something we are trying to be better at is that as we grew over the past 15 to 20 years, we were probably a bit relaxed with our ground rules, and that’s so easy to do,” Murphy says. “So we are working to establish better guidelines because we believe that the employees are asking for that; they really want to understand better role definition and empowerment to actually be responsible for that category and not just have a title for that category. It would have been easier for us if more structure was in place for us to slide from one role to another.”
Continuing a legacy
Murphy acknowledges the transfer of ownership for both the old and new owners was easier because the company stayed within the Johnston Paint & Decorating “family.” Employees become friends, and friends become family like. The culture at Johnston goes beyond business; employees attend one another’s weddings and baby showers, which is something an outside buyer might have had a hard time measuring up to.
“I can only speak from my experience, but I can’t imagine jumping in and buying a business that I had no prior experience in,” Murphy says. “I know people do it all day long, but I guess in terms of Johnstons, I would be fearful of someone coming in that wasn’t so vested in the history of the company that they would not carry out the business in the manner that the original founders wanted it to be carried out.”
Gary Turner is confident the new owners will carry out the Johnston legacy successfully, and he feels it was the right time for a change in the company.
“They kept all the same accounts we had, and they didn’t have to build up credit, so they really were able to take off right away,” Turner says. “It was time for some new blood and some new ideas, and I have zero doubt that they will succeed.”
Chapman Heating and Air Conditioning is All in the Family
In 1958, George and Lois Chapman made a bold move. They opened Chapman Heating and Air Conditioning and never looked back. More than 50 years later, the third generation of Chapmans is running the family business upholding the same company purpose, “To serve our customers comfort with excellence.”
After working in heating and cooling for more than eight years, George was encouraged by family and friends to open his own business. “I was barely making a living,” George says.
With four small children at home, he took the leap. “There wasn’t any planning on what the future was,” George says. “We were just trying to survive.” In the beginning, Chapman’s operated out of their home with one service truck and a repurposed poultry building his father-in-law gave them.
Ss Chapman’s established a name for itself in the industry, the business grew. In 1972, they built the new building where the business is housed today. George credits the company’s success to hard work and always treating the customer as No 1.
“Do what you say you’re going to do, and really that’s the most efficient way to operate anyway,” George says.
Now, the company employs 30 team members and in 2014 logged 11,400 visits, an average of 950 per month. The Chapman family “always believed in strong family ties, and it extended to the employees, customers and vendors,” Ron Chapman says.
Passing the company down
After running the business for more than 20 years, George approached his son, Ron, then a senior in high school, with the option of purchasing the business in a few years. From the time Ron was 5 years old, “he went with me every day that he could, and I knew in my own mind he was going to do the job someday because he had a lot of interest in it,” George says.
Ron and his wife, Beth, purchased the business in 1982. “In the ’70s and ’80s, there were not very many books on succession planning,” Ron says. “What I learned didn’t come out of a book; it was on-the-job training.” During the 30 years Ron and Beth ran the business, they faced ups and downs but were able to keep the business growing. They acquired Stephen’s Service Co. and also Roger’s Heating and Air Conditioning in 1996 and 1998, respectively.
“Their talents lie in different areas, and I think that is one of the reasons for their success,” George says.
Ron and Beth’s daughters, Heidi Crouch and Heather Figueiredo, had a similar experience growing up working for the company. Heidi also worked summers during college and starting working at Chapman’s full time after she graduated. “Heather and I grew up in the company, of course, so we were filing since we knew our ABCs probably,” Heidi says.
In 2005, timeline and methodology talks began for Heidi and Heather to purchase the business from their parents, alongside their husbands, Nathan Crouch and Phil Figueiredo. Both men had been working for the company for several years.
“When we sold to our kids [third generation], we sought help,” Ron says. They hired a succession planning consultant, which “was a huge help working through all the family and business dynamics of passing the torch to the next generation,” he adds.
The consultant asked difficult questions and discussed strengths, weaknesses and personality types to help the family determine who was best for different roles. “I would say that was a major key in how well the transition went,” Heidi says.
“Goal No. 1 was to remain a tight-knit family and to do this together even though it was kind of hard and awkward at first,” Heather adds.
After the initial conversations, Heidi, Nathan, Heather and Phil purchased the business in 2012 as equal owners. Phil now serves as the operations and general manager, and Nathan is the business manager, overseeing financials and human resources. Heidi works part time, handling marketing efforts and event planning. Heather attends all meetings and collaborates in the decision-making process.
Learning from previous generations
“My grandpa and grandma were just incredible people that took care of the customer and just taught us that you do what’s right,” Heidi says. “You do what you say you’re going to do, and this business will keep on going.”
“It’s really rewarding to know that you started something that would mean a good life for your family,” George says. “It isn’t like they didn’t have any challenges either, but they had a start; they had a chance.”
Beth is happy to see her children’s success. “It warms our hearts to hear the four grands [grandchildren] talking about ‘working at the office’ and maybe someday wanting to buy it from their parents,” she says.
The Insurance Group Celebrates a Second Century
“I get calls at least once a week, usually from somebody like Franklin Templeton or somebody like that, who’s looking to buy insurance companies,” says Charlie Digges Jr. while sitting in his office at the sleek two-story building that The Insurance Group moved into in 2007. “That’s not our intent. Our intent is to see this operation continue beyond us.”
Now 35 years deep in his leadership tenure at The Insurance Group, Digges and his partner, Skip Grossnickle, are gradually stepping back. Although they have no intention of retiring any time soon, Grossnickle and Digges began a gradual transfer of leadership five years ago: Since then, Rich Miller and Jason Swindle — longtime Insurance Group employees and Skip’s sons-in-law — have been gradually accumulating stock and becoming equal partners.
“It was an easy decision,” Digges says. “And I would hope that the people who came before us would say the same of Skip and me, but it was easy. They had both really proven themselves, and they had shown they were interested in all the things we talk about: family, customers and the community.”
Grossnickle was equally laudatory of the two, saying: “Our culture in the company is that each employee feels they have ownership. Rich and Jason have not only accepted the culture, but they’ve improved it.”
The right mindset
The Insurance Group, or some version of it, was around long before Digges and Grossnickle took over (Grossnickle was added as a partner in 1971, Digges in 1979). With roots that tangle back 107 years, there have been a lot of successions and transformations.
The earliest forerunner of The Insurance Group was the Columbia Insurance Agency, which started business in 1898. Rollins & Rollins, affiliated with the family of James Rollins, the “Father of the University of Missouri,” merged with Columbia Insurance in 1922 and became Rollins & Vandiver. A couple decades later, a young Air Force pilot and MU grad named Charles Digges was added as partner, and the company became Rollins, Vandiver & Digges.
In the late ’60s, Charlie Digges Jr., then on a golf scholarship at MU, began working for his dad’s company part time. The younger Digges was hired to measure and document, with a Polaroid camera, farms that the company insured: a job that nurtured his keen people skills. It was the first experience Digges had with The Insurance Group; a decade later, after a stint as an Air Force and commercial pilot, he was added as a partner.
“My father had nothing to do with it, which I always thought was really cool,” he says. “Mr. Vandiver and Skip gave me a call and said, ‘Would you stop by the office tomorrow at 10 o’ clock,’ and I said, ‘Well, OK.’ They said, ‘We’d like you to come back and be a part of Rollins, Vandiver & Digges.’ I thought about it for half a day before I said yes.”
Grossnickle says Miller and Swindle have also proven themselves worthy beyond family ties, calling his sons-in-law “morally and ethically outstanding people” and praising their intelligent and family-first mindset.
Here to stay
Internal cohesion has been a point of focus through the generations, and understanding and acceptance are at the forefront of The Insurance Group’s leadership style.
“Skip and I have never had a single disagreement in 35 years,” Digges says proudly. “Not one. Nobody believes that, but we’ve always been able to sit down in a room and talk about where we want to go, and I think that’s just remarkable.”
“There have been great people before me,” Grossnickle says, “and we want to bring in people who will respect that and continue to improve.”
Digges, Grossnickle, Miller and Swindle occupy the four corner offices of The Insurance Group’s top floor. The company moved out of its longtime rented office at the downtown Guitar Building to establish a place of its own in 2007. The building, Digges says, establishes permanence; it lets people know The Insurance Group is here to stay for generations to come.
Grossnickle has high expectations for those generations and for his sons-in-law. “I’d like to see them genuinely care about our employees, customers and associates,” he says. “Now, that’s easy to say, but it’s hard to do. It really takes someone with that kind of heart and that compassion, but they can do it.”
“Skip and I have worked really hard to build this company to where it is today,” Digges says. “But there’s nothing that would make me prouder than to see Rich and Jason have it twice as big in 20 years.”